Maglasang vs. Northwestern University, Inc. G.R. No. 188986. March 20, 2013 PDF

1/11/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 694
G.R. No. 188986. March 20, 2013.*
GALILEO A. MAGLASANG, doing business under the

name GL Enterprises, petitioner, vs. NORTHWESTERN
UNIVERSITY, INC., respondent.
Civil Law; Obligations; Reciprocal Obligations; Rescission;

The power to rescind the obligations of the injured party is implied
in reciprocal obligations.―The power to rescind the obligations of
the injured party is implied in reciprocal obligations, such as in
this case. On this score, the CA correctly applied Article 1191,
which provides thus: The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. The injured party may choose
between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter
should become impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing the fixing of a
period. The two contracts require no less than substantial breach
before they can be rescinded. Since the contracts do not provide
for a definition of substantial breach that would terminate the
rights and obligations of the parties, we apply the definition found
in our jurisprudence.
_______________
* FIRST DIVISION.
129
VOL. 694, MARCH 20, 2013 129
Maglasang vs. Northwestern University, Inc.
Same; Damages; Attorney’s Fees; An award of attorney’s fees is

proper if one was forced to litigate and incur expenses to protect
one’s rights and interest by reason of an unjustified act or omission
on the part of the party from whom the award is sought.―With
respect to attorney’s fees, Article 2208 of the Civil Code allows the
www.central.com.ph/sfsreader/session/0000016f92f6026b6d2a2a85003600fb002c009e/t/?o=False 1/13
grant thereof when the court deems it just and equitable that
attorney’s fees should be recovered. An award of attorney’s fees is
proper if one was forced to litigate and incur expenses to protect
one’s rights and interest by reason of an unjustified act or
omission on the part of the party from whom the award is sought.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
Jose Allan N. Maglasang for petitioner.
Tan, Acut, Lopez & Pizon for respondent.
SERENO, C.J.:
Before this Court is a Rule 45 Petition, seeking a review
of the 27 July 2009 Court of Appeals (CA) Decision in CA-
G.R. CV No. 88989,1 which modified the Regional Trial
Court (RTC) Decision of 8 January 2007 in Civil Case No.
Q-04-53660.2 The CA held that petitioner substantially
breached its contracts with respondent for the installation
of an integrated bridge system (IBS).
The antecedent facts are as follows:3
On 10 June 2004, respondent Northwestern University
(Northwestern), an educational institution offering
maritime-related courses, engaged the services of a Quezon
City-based
_______________
1 CA Decision, penned by Associate Justice Isaias P. Dicdican, with
Associate Justices Bienvenido L. Reyes (now a member of this Court) and
Marlene B. Gonzales-Sison concurring.
2 RTC Decision penned by Judge Hilario L. Laqui.
3 Rollo, pp. 21-38.
130
130 SUPREME COURT REPORTS ANNOTATED

firm, petitioner GL Enterprises, to install a new IBS in

Laoag City. The installation of an IBS, used as the
students’ training laboratory, was required by the
Commission on Higher Education (CHED) before a school
could offer maritime transportation programs.4
Since its IBS was already obsolete, respondent required
petitioner to supply and install specific components in
order to form the most modern IBS that would be
acceptable to CHED and would be compliant with the
standards of the International Maritime Organization

(IMO). For this purpose, the parties executed two contracts.
The first contract partly reads:5
That in consideration of the payment herein mentioned to be

made by the First Party (defendant), the Second Party agrees to
furnish, supply, install and integrate the most modern
INTEGRATED BRIDGE SYSTEM located at Northwestern
University MOCK BOAT in accordance with the general
conditions, plans and specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
INTEGRATED BRIDGE SYSTEM
A.2-RADAR SYSTEM
B.OVERHEAD CONSOLE MONITORING SYSTEM
C.ENGINE TELEGRAPH SYSTEM
D.ENGINE CONTROL SYSTEM
E.WEATHER CONTROL SYSTEM
F.ECDIS SYSTEM
G.STEERING WHEEL SYSTEM
H.BRIDGE CONSOLE
TOTAL COST: PhP 3,800,000.00
LESS: OLD MARITIME
EQUIPMENT TRADE-IN VALUE 1,000,000.00
DISCOUNT 100,000.00
_______________
4 Id., at p. 13; Petition for Review dated 13 September 2009.
5 Id., at pp. 43-44.
131
VOL. 694, MARCH 20, 2013 131

PROJECT COST (MATERIALS

& INSTALLATION) PhP 2,700,000.00
(Emphasis in the original)
The second contract essentially contains the same terms

and conditions as follows:6
That in consideration of the payment herein mentioned to be

made by the First Party (defendant), the Second Party agrees to
furnish, supply, install & integrate the most modern
INTEGRATED BRIDGE SYSTEM located at Northwestern
University MOCK BOAT in accordance with the general
conditions, plans and specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
1. ARPA RADAR SIMULATION ROOM
x x x x
2. GMDSS SIMULATION ROOM
x x x x
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions:

(1) the IBS and its components must be compliant with the
IMO and CHED standard and with manuals for
simulators/major equipment; (2) the contracts may be
terminated if one party commits a substantial breach of its
undertaking; and (3) any dispute under the agreement
shall first be settled mutually between the parties, and if
settlement is not obtained, resort shall be sought in the
courts of law.
Subsequently, Northwestern paid P1 million as down
payment to GL Enterprises. The former then assumed
possession of Northwestern’s old IBS as trade-in payment
for its service. Thus, the balance of the contract price
remained at P1.97 million.7
_______________
6 Id., at pp. 45-46.
7 Id., at p. 85.
132

Two months after the execution of the contracts, GL

Enterprises technicians delivered various materials to the
project site. However, when they started installing the
components, respondent halted the operations. GL
Enterprises then asked for an explanation.8
Northwestern justified the work stoppage upon its
finding that the delivered equipment were substandard.9 It
explained further that GL Enterprises violated the terms
and conditions of the contracts, since the delivered
components (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) contained
indications of being reconditioned machines; and (4) did not
meet the IMO and CHED standards. Thus, Northwestern
demanded compliance with the agreement and suggested
that GL Enterprises meet with the former’s representatives
to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed
on 8 September 2004 a Complaint10 for breach of contract
and prayed for the following sums: P1.97 million,

representing the amount that it would have earned, had
Northwestern not stopped it from performing its tasks
under the two contracts; at least P100,000 as moral
damages; at least P100,000 by way of exemplary damages;
at least P100,000 as attorney’s fees and litigation expenses;
and cost of suit. Petitioner alleged that Northwestern
breached the contracts by ordering the work stoppage and
thus preventing the installation of the materials for the
IBS.
Northwestern denied the allegation. In its defense, it
asserted that since the equipment delivered were not in
accordance with the specifications provided by the
contracts, all succeeding works would be futile and would
entail unnecessary expenses. Hence, it prayed for the
rescission of the con-
_______________
8 Id., at p. 47; petitioner’s letter dated 23 August 2004.
9 Id., at p. 48; respondent’s letter dated 30 August 2004.
10 Id., at pp. 39-42.
133
VOL. 694, MARCH 20, 2013 133

tracts and made a compulsory counterclaim for actual,

moral, and exemplary damages, and attorney’s fees.
The RTC held both parties at fault. It found that
Northwestern unduly halted the operations, even if the
contracts called for a completed project to be evaluated by
the CHED. In turn, the breach committed by GL
Enterprises consisted of the delivery of substandard
equipment that were not compliant with IMO and CHED
standards as required by the agreement.
Invoking the equitable principle that “each party must
bear its own loss,” the trial court treated the contracts as
impossible of performance without the fault of either party
or as having been dissolved by mutual consent.
Consequently, it ordered mutual restitution, which would
thereby restore the parties to their original positions as
follows:11
Accordingly, plaintiff is hereby ordered to restore to the

defendant all the equipment obtained by reason of the First
Contract and refund the downpayment of P1,000,000.00 to the
defendant; and for the defendant to return to the plaintiff the
equipment and materials it withheld by reason of the non-

continuance of the installation and integration project. In the
event that restoration of the old equipment taken from
defendant’s premises is no longer possible, plaintiff is hereby
ordered to pay the appraised value of defendant’s old equipment
at P1,000,000.00. Likewise, in the event that restoration of the
equipment and materials delivered by the plaintiff to the
defendant is no longer possible, defendant is hereby ordered to
pay its appraised value at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all
the equipment obtained by reason of the Second Contract, or if
restoration or return is not possible, plaintiff is ordered to pay the
value thereof to the defendant.
SO ORDERED.
_______________
11 Id., at p. 92.
134

Aggrieved, both parties appealed to the CA. With each of

them pointing a finger at the other party as the violator of
the contracts, the appellate court ultimately determined
that GL Enterprises was the one guilty of substantial
breach and liable for attorney’s fees.
The CA appreciated that since the parties essentially
sought to have an IBS compliant with the CHED and IMO
standards, it was GL Enterprises’ delivery of defective
equipment that materially and substantially breached the
contracts. Although the contracts contemplated a
completed project to be evaluated by CHED, Northwestern
could not just sit idly by when it was apparent that the
components delivered were substandard.
The CA held that Northwestern only exercised ordinary
prudence to prevent the inevitable rejection of the IBS
delivered by GL Enterprises. Likewise, the appellate court
disregarded petitioner’s excuse that the equipment
delivered might not have been the components intended to
be installed, for it would be contrary to human experience
to deliver equipment from Quezon City to Laoag City with
no intention to use it.
This time, applying Article 1191 of the Civil Code, the
CA declared the rescission of the contracts. It then
proceeded to affirm the RTC’s order of mutual restitution.
Additionally, the appellate court granted P50,000 to

Northwestern by way of attorney’s fees.
Before this Court, petitioner rehashes all the arguments
he had raised in the courts a quo.12 He maintains his
prayer for actual damages equivalent to the amount that
he would have earned, had respondent not stopped him
from performing his tasks under the two contracts; moral
and exemplary damages; attorney’s fees; litigation
expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant
appeal is whether the CA gravely erred in (1) finding
substan-
_______________
12 Id., at pp. 12-16.
135
VOL. 694, MARCH 20, 2013 135

tial breach on the part of GL Enterprises; (2) refusing

petitioner’s claims for damages, and (3) awarding
attorney’s fees to Northwestern.
Ruling of the Court
Substantial Breaches of the
Contracts
Although the RTC and the CA concurred in ordering
restitution, the courts a quo, however, differed on the basis
thereof. The RTC applied the equitable principle of mutual
fault, while the CA applied Article 1191 on rescission.
The power to rescind the obligations of the injured party
is implied in reciprocal obligations, such as in this case. On
this score, the CA correctly applied Article 1191, which
provides thus:
The power to rescind obligations is implied in reciprocal ones,

in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
The two contracts require no less than substantial

breach before they can be rescinded. Since the contracts do
not provide for a definition of substantial breach that

would terminate the rights and obligations of the parties,
we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that
substantial, unlike slight or casual breaches of contract,
are fundamental
_______________
13 498 Phil. 128; 459 SCRA 80 (2005).
136

breaches that defeat the object of the parties in entering

into an agreement, since the law is not concerned with
trifles.14
The question of whether a breach of contract is
substantial depends upon the attending circumstances.15
In the case at bar, the parties explicitly agreed that the
materials to be delivered must be compliant with the
CHED and IMO standards and must be complete with
manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the intent
of the parties was to replace the old IBS in order to obtain
CHED accreditation for Northwestern’s maritime-related
courses.
According to CHED Memorandum Order (CMO) No. 10,
Series of 1999, as amended by CMO No. 13, Series of 2005,
any simulator used for simulator-based training shall be
capable of simulating the operating capabilities of the
shipboard equipment concerned. The simulation must be
achieved at a level of physical realism appropriate for
training objectives; include the capabilities, limitations and
possible errors of such equipment; and provide an interface
through which a trainee can interact with the equipment,
and the simulated environment.
Given these conditions, it was thus incumbent upon GL
Enterprises to supply the components that would create an
IBS that would effectively facilitate the learning of the
students.
However, GL Enterprises miserably failed in meeting its
responsibility. As contained in the findings of the CA and
the RTC, petitioner supplied substandard equipment when
it delivered components that (1) were old; (2) did not have
instruction manuals and warranty certificates; (3) bore
indications of being reconditioned machines; and, all told,

(4) might
_______________
14 234 Phil. 523; 150 SCRA 632 (1987).
15 G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., G.R. No.
182720, 2 March 2010, 614 SCRA 75.
137
VOL. 694, MARCH 20, 2013 137

not have met the IMO and CHED standards. Highlighting

the defects of the delivered materials, the CA quoted
respondent’s testimonial evidence as follows:16
Q: In particular which of these equipment of CHED requirements
were not complied with?
A: The Radar Ma’am, because they delivered only 10-inch PPI, that is
the monitor of the Radar. That is 16-inch and the gyrocompass with
two (2) repeaters and the history card. The gyrocompass―there is
no marker, there is no model, there is no serial number, no gimbal,
no gyroscope and a bulb to work it properly to point the true North
because it is very important to the Cadets to learn where is the true
North being indicated by the Master Gyrocompass.
x x x x
Q: Mr. Witness, one of the defects you noted down in this history card
is that the master gyrocompass had no gimbals, gyroscope and balls
and was replaced with an ordinary electric motor. So what is the
Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not indicate
the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must[,] to learn
into school where is the true North and what is that equipment to
be used on board.
Q: One of the defects is that the steering wheel was that of an ordinary
automobile. And what is the implication of this?
A: Because on board Ma’am, we are using the real steering wheel and
the cadets will be implicated if they will notice that the ship have
the same steering wheel as the car so it is not advisable for them.
_______________
16 TSN dated 7 April 2006, pp. 9-12.
138

Q: And another one is that the gyrocompass repeater was only

refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma’am because this gyro repeater, it must to
repeat also the true [N]orth being indicated by the Master Gyro
Compass so it will not work properly, I don’t know it will work
properly. (Underscoring supplied)
Evidently, the materials delivered were less likely to

pass the CHED standards, because the navigation system
to be installed might not accurately point to the true north;
and the steering wheel delivered was one that came from
an automobile, instead of one used in ships. Logically, by
no stretch of the imagination could these form part of the
most modern IBS compliant with the IMO and CHED
standards.
Even in the instant appeal, GL Enterprises does not
refute that the equipment it delivered was substandard.
However, it reiterates its rejected excuse that
Northwestern should have made an assessment only after
the completion of the IBS.17 Thus, petitioner stresses that
it was Northwestern that breached the agreement when
the latter halted the installation of the materials for the
IBS, even if the parties had contemplated a completed
project to be evaluated by CHED. However, as aptly
considered by the CA, respondent could not just “sit still
and wait for such day that its accreditation may not be
granted by CHED due to the apparent substandard
equipment installed in the bridge system.”18 The appellate
court correctly emphasized that, by that time, both parties
would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the
contracts, the materials that were hauled all the way from
Quezon City to Laoag City under the custody of the four
designated installers might not have been the components
to be
_______________
17 Rollo, p. 13; Petition for Review dated 13 September 2009.
18 Id., at p. 37; CA Decision dated 27 July 2009.
139
VOL. 694, MARCH 20, 2013 139
used.19 Without belaboring the point, we affirm the

conclusion of the CA and the RTC that the excuse is
untenable for being contrary to human experience.20
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus clear
that its violation was not merely incidental, but directly
related to the essence of the agreement pertaining to the
installation of an IBS compliant with the CHED and IMO
standards. Consequently, the CA correctly found
substantial breach on the part of petitioner.
In contrast, Northwestern’s breach, if any, was
characterized by the appellate court as slight or casual.21
By way of negative definition, a breach is considered casual
if it does not fundamentally defeat the object of the parties
in entering into an agreement. Furthermore, for there to be
a breach to begin with, there must be a “failure, without
legal excuse, to perform any promise which forms the whole
or part of the contract.”22
Here, as discussed, the stoppage of the installation was
justified. The action of Northwestern constituted a legal
excuse to prevent the highly possible rejection of the IBS.
Hence, just as the CA concluded, we find that
Northwestern exercised ordinary prudence to avert a
possible wastage of time, effort, resources and also of the
P2.9 million representing the value of the new IBS.
_______________
19 Id., at pp. 12-13; Petition for Review dated 13 September 2009.
20 Id., at p. 91, RTC Decision dated 8 January 2007; id., at p. 36, CA
Decision dated 27 July 2009.
21 Id.
22 Omengan v. Philippine National Bank, G.R. No. 161319, 23 January
2007, 512 SCRA 305.
140

Actual Damages, Moral and Exem-

plary Damages, and Attorney’s Fees
As between the parties, substantial breach can clearly
be attributed to GL Enterprises. Consequently, it is not the
injured party who can claim damages under Article 1170 of
the Civil Code. For this reason, we concur in the result of
the CA’s Decision denying petitioner actual damages in the

form of lost earnings, as well as moral and exemplary
damages.
With respect to attorney’s fees, Article 2208 of the Civil
Code allows the grant thereof when the court deems it just
and equitable that attorney’s fees should be recovered. An
award of attorney’s fees is proper if one was forced to
litigate and incur expenses to protect one’s rights and
interest by reason of an unjustified act or omission on the
part of the party from whom the award is sought.23
Since we affirm the CA’s finding that it was not
Northwestern but GL Enterprises that breached the
contracts without justification, it follows that the appellate
court correctly awarded attorney’s fees to respondent.
Notably, this litigation could have altogether been avoided
if petitioner heeded respondent’s suggestion to amicably
settle; or, better yet, if in the first place petitioner delivered
the right materials as required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision
of the Court of Appeals in CA-G.R. CV No. 88989 is hereby
AFFIRMED.
SO ORDERED.
Leonardo-De Castro, Bersamin, Villarama, Jr. and

Leonen,** JJ., concur.
_______________
23 Asian Center for Career and Employment System and Services, Inc.
v. NLRC, 358 Phil. 380; 297 SCRA 727 (1998).
** Additional member in lieu of Associate Justice Bienvenido L. Reyes
due to his prior action in the Court of Appeals.
141
VOL. 694, MARCH 20, 2013 141

Judgment affirmed.
Notes.―In reciprocal obligations, neither party incurs in

delay if the other party does not comply or is not ready to
comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Megaworld Globus
Asia, Inc. vs. Tanseco, 603 SCRA 263 [2009])
A substantial breach of a reciprocal obligation like
failure to pay the price in the manner prescribed by the
contract entitles the injured party to rescind the obligation.
(G.G. Sportswear Mfg. Corp. vs. World Class Properties,

Inc., 614 SCRA 75 [2010])
――o0o――
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1/11/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 694

G.R. No. 188986. March 20, 2013.*

GALILEO A. MAGLASANG, doing business under the

Civil Law; Obligations; Reciprocal Obligations; Rescission;

VOL. 694, MARCH 20, 2013 129

Maglasang vs. Northwestern University, Inc.

Same; Damages; Attorney’s Fees; An award of attorney’s fees is

PETITION for review on certiorari of a decision of the

130 SUPREME COURT REPORTS ANNOTATED

firm, petitioner GL Enterprises, to install a new IBS in

standards of the International Maritime Organization

That in consideration of the payment herein mentioned to be

VOL. 694, MARCH 20, 2013 131

PROJECT COST (MATERIALS

The second contract essentially contains the same terms

That in consideration of the payment herein mentioned to be

Common to both contracts are the following provisions:

132 SUPREME COURT REPORTS ANNOTATED

Two months after the execution of the contracts, GL

and prayed for the following sums: P1.97 million,

VOL. 694, MARCH 20, 2013 133

tracts and made a compulsory counterclaim for actual,

Accordingly, plaintiff is hereby ordered to restore to the

equipment and materials it withheld by reason of the non-

134 SUPREME COURT REPORTS ANNOTATED

Aggrieved, both parties appealed to the CA. With each of

Additionally, the appellate court granted P50,000 to

VOL. 694, MARCH 20, 2013 135

tial breach on the part of GL Enterprises; (2) refusing

The power to rescind obligations is implied in reciprocal ones,

The two contracts require no less than substantial

not provide for a definition of substantial breach that

136 SUPREME COURT REPORTS ANNOTATED

breaches that defeat the object of the parties in entering

indications of being reconditioned machines; and, all told,

VOL. 694, MARCH 20, 2013 137

not have met the IMO and CHED standards. Highlighting

16 TSN dated 7 April 2006, pp. 9-12.

138 SUPREME COURT REPORTS ANNOTATED

Q: And another one is that the gyrocompass repeater was only

Evidently, the materials delivered were less likely to

VOL. 694, MARCH 20, 2013 139

Maglasang vs. Northwestern University, Inc.

used.19 Without belaboring the point, we affirm the

140 SUPREME COURT REPORTS ANNOTATED

Actual Damages, Moral and Exem-

the CA’s Decision denying petitioner actual damages in the

Leonardo-De Castro, Bersamin, Villarama, Jr. and

VOL. 694, MARCH 20, 2013 141

Notes.―In reciprocal obligations, neither party incurs in

(G.G. Sportswear Mfg. Corp. vs. World Class Properties,

© Copyright 2020 Central Book Supply, Inc. All rights reserved.

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